Cycles, sex and black swans

There’s nothing like a casual reference to sex to add a certain frisson to a debate.

There we were at MIPIM UK debating THE big question on everyone’s lips - where are we in the property cycle? - and UCL professor Peter Rees suddenly chipped in with a rather racy comment on soaring house prices. “Students come over here for the best free sex and education; we need to keep them,” he declared to a ripple of laughter. “If this false market continues to grow, it will be overpriced and people won’t be able to afford to live here or work here and then it will collapse.”

The irony? Amid such stark warnings, the ‘s’ word offered something more akin to light relief than extra spice, because as anyone who was in the packed room will attest, Rees and fellow panellists Nick Cooper from Palmer Capital and Linus Forsberg from Trinova Real Estate were already addressing a completely attentive audience.

As chair, I set the scene by reminding people of Jefferies analyst Mike Prew’s blunt verdict that the market had reached the point of “maximum optimism”. So what did the panellists reckon? To say they had different views would be an understatement. While Cooper felt we were “in the second half of the game” with three or four years of decent returns driven by rental growth ahead of us, Forsberg was far more sceptical, contending that central London was “past the point of maximum optimism”.

“People are paying very high prices and it looks very aggressive,” he noted, adding: “Other parts of the UK and Europe have still got some way to go.”

He was also alert to the external threats to the real estate market posed by the volatile global economic and political situation, a threat acknowledged by Cooper. “Could a black swan fly over the horizon? Absolutely. But in the absence of a black swan, I’m feeling OK.”

He was confident overseas investors would continue to see the UK as a safe haven and contended that although investors needed to look carefully at what they were buying, the dynamics were different this time. “If you look at the debt side of things it is now 30/70 debt to equity whereas before it was the opposite.”

It was a good point, but as he reiterated several times, there was always the danger of a black swan event. No wonder Rees described the market as “a rollercoaster”.

Was there greater consensus among the audience, I wondered. Those who thought they could slope off without getting involved were quickly disabused of that notion when I put the question of when we would hit the top to the vote.

A couple of hands went up when I asked whether we already had, three or four were raised when 2016 was mooted and then came the big show of hands as 40% predicted 2017 would be the year. Around 20% then plumped for 2018, but we already had our answer: 2017 is when a good number of you think we’ll hit the top. Time to prepare, then, and do what can be done to mitigate the impact of the subsequent downturn - unless there is a black swan event, of course.

What might have been. In January, 2020 was shaping up to be a transformative year for the climate agenda. Inspired by cataclysmic floods and fires, the Extinction Rebellion and the stirring rhetoric of Greta Thunberg, the industry finally seemed to have woken up to the gravity of the situation and ...